Guide
Navigate Section 106 agreements
How to understand, negotiate, and manage Section 106 planning obligations. Covers what can be requested, the three legal tests, viability negotiations, and modifying existing agreements.
Section 106 agreements (S106) are legally binding obligations between developers and local planning authorities. They're often required as a condition of planning permission and can include contributions towards affordable housing, infrastructure, schools, highways, and community facilities.
For SME developers, S106 negotiations are often cited as one of the biggest barriers to viability. Understanding what can legitimately be requested - and what cannot - puts you in a stronger position to negotiate proportionate obligations that don't undermine your scheme.
This guide explains the legal framework, what local authorities can and cannot require, and how to approach negotiations.
What is a Section 106 agreement?
A Section 106 agreement is a legal deed entered into under Section 106 of the Town and Country Planning Act 1990. It 'runs with the land', meaning obligations transfer to future owners.
The three legal tests
Local planning authorities cannot request whatever they like. Planning obligations must pass three statutory tests set out in the Community Infrastructure Levy Regulations 2010. If an obligation fails any test, it should not be required.
Applying the tests in practice
Understanding these tests helps you push back on unreasonable requests:
- Necessary: If permission could be granted without the obligation, it fails this test. The LPA must show why the obligation is essential, not just desirable.
- Directly related: A housing development cannot be required to fund a new leisure centre on the other side of town unless there's a clear connection to the development's impact.
- Fairly and reasonably related in scale: A 5-unit scheme shouldn't bear the same contribution as a 500-unit scheme. Contributions must be proportionate to the development's impact.
Key point: If you believe a requested contribution fails any of these tests, you can challenge it during negotiations or at appeal.
CIL vs Section 106
Section 106 works alongside the Community Infrastructure Levy (CIL), but they serve different purposes and cannot fund the same infrastructure.
Common S106 obligations
While every site is different, these are the most common obligations requested:
- Affordable housing: Often the largest obligation - typically 10-40% of units depending on local policy and viability.
- Education contributions: Calculated per dwelling based on expected pupil yield. Can be substantial on family housing schemes.
- Highway improvements: Junction improvements, pedestrian crossings, cycle infrastructure directly related to the development.
- Open space and play areas: On-site provision or financial contribution for off-site improvements.
- Healthcare: Contributions towards GP surgery capacity in areas of identified need.
- Biodiversity and ecology: Habitat management plans, SANG contributions in proximity to protected habitats.
- Travel plans: Requirements to prepare and implement sustainable transport measures.
Viability and reducing obligations
If full S106 compliance would make your development undeliverable, you may be able to negotiate reductions through a viability assessment.
When viability negotiations succeed
Viability reductions are more likely to be accepted when:
- You have genuine abnormal costs not reflected in land value
- Market conditions have materially changed since the plan was adopted
- Your site has exceptional constraints (contamination, listed buildings, difficult ground conditions)
- You can demonstrate a professional, RICS-compliant appraisal
- You're transparent and willing to accept review mechanisms
Warning: Viability negotiations take time and cost money. Budget for professional fees (typically £5,000-£20,000+) and additional negotiation time (potentially 3-6 months).
Negotiation strategies for SME developers
Effective S106 negotiation requires preparation and professionalism:
Before application
- Use pre-application advice: Discuss likely S106 requirements early. This avoids surprises and allows time to factor obligations into your land appraisal.
- Research local requirements: Check the local plan, SPDs, and recent committee reports for similar schemes. Understand what's been agreed on comparable sites.
- Build in S106 from the start: When acquiring land, assume policy-compliant S106. Don't assume you'll negotiate it down later.
During negotiation
- Be proportionate: If your development is minor (under 10 units), push back on contributions designed for major schemes.
- Challenge the evidence: Ask for the basis of contribution calculations. Education contributions, for example, should reflect actual local capacity needs.
- Offer alternatives: If affordable housing isn't viable, propose commuted sums, off-site provision, or alternative tenure mixes.
- Document everything: Keep records of all discussions and commitments. Verbal assurances don't count.
Modifying or discharging S106 agreements
If your circumstances change, or you've inherited a site with onerous obligations, you may be able to modify or discharge the agreement.
Step-by-step: Managing S106 on your development
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Research local S106 requirements before acquiring land
Check the local plan affordable housing policy, SPDs on planning obligations, and recent committee reports for comparable schemes. Factor expected S106 into your land appraisal - don't assume reductions.
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Engage in pre-application discussions
Request pre-application advice and specifically ask about likely S106 requirements. This early engagement helps you understand the LPA's expectations and factor them into your scheme design.
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Prepare for negotiation
If full S106 is challenging, prepare your case professionally. This may include a viability assessment, evidence of abnormal costs, or alternative delivery proposals. Document why specific obligations fail the three tests.
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Review the draft agreement carefully
S106 agreements are legal documents. Have them reviewed by a planning solicitor. Pay attention to trigger points, payment schedules, indexation provisions, and what happens if you don't deliver on time.
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Factor S106 into your programme
S106 obligations often have trigger points tied to occupation or commencement. Build these into your construction programme and cash flow. Missing trigger points can stop you selling or occupying units.
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Monitor compliance throughout development
Track which obligations you've satisfied, what payments are due, and what evidence you need to provide. Keep records - you may need to demonstrate compliance years later.
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Apply to modify if circumstances change
If market conditions change significantly, you can apply under Section 106A to modify or discharge obligations. This is most effective after 5 years, but negotiated variations are possible at any time.
SME housebuilders: S106 is your biggest negotiable cost
For small and medium housebuilders, S106 obligations often determine whether a site is viable. The disproportionate burden on small sites is recognised - policy increasingly favours proportionate contributions for smaller developments.
Key points for SME developers:
- Many affordable housing policies have lower thresholds for small sites (often 10+ units)
- Small site exemptions may apply to BNG and other obligations
- Commuted sums can be more practical than on-site affordable housing delivery
- New "medium sites" category (10-49 units) may have simplified requirements
What happens if you breach S106
S106 obligations are legally enforceable. Breach can result in:
- Injunction: The LPA can seek a court order preventing further development until you comply
- Enforcement action: Formal enforcement notice requiring compliance
- Bond call: If you've provided a bond, it may be called in
- Restriction on sales: Title issues may prevent sale of units
Take S106 compliance seriously. Track obligations, meet deadlines, and communicate proactively with the LPA if issues arise.